The Center of the California Enterprise Zone Information Universe


Dan Morain is Getting Irrational Over Enterprise Zones

Is Dan Morain advocating for a California in which individual civil liberties are so restricted that businesses are not free to make ordinary business decisions?

Besides his disconcertment with business seeking profitability, it also sounds like Morain is trying to simultaneously argue that the zone based incentives are bad because they cause businesses to “steal the lunch” from a different community, but, at the same time, that they don’t do anything to influence businesses decisions either. Morain writes, “How important to VWR were the tax breaks? “Potential tax incentives did not influence our decision,” Collado said.” Um, then what is the whole column about exactly?

Besides that, Morain’s superficial understanding of the Enterprise Zone program leads to some exaggerated assumptions:

VWR would be relieved of state sales taxes on $20 million in goods it purchases for the new facility, roughly $1.5 million.

It also would be entitled to hiring tax credits of $37,000 for each qualified employee, by far the richest hiring tax credit offered by any state. VWR plans to hire 100 or 150 people, good for perhaps $3.7 million or more spread over five years.

In an effort to end California’s budget crisis and plug a $26.6 billion deficit, Gov. Jerry Brown proposes to abolish the zones, saving California $500 million a year. It’s a modest step, but not an easy one.

There is no relief of sales tax for “goods,” but rather a tax credit against sales tax paid on qualified equipment, up to $20 million. Depending on their corporate structure, it could be a lot less. Many states have incentives for capital equipment purchases.

The $37,000 credit per employee is an absolute maximum and almost never materializes in the real world. Morain incorrectly assumes 100% of new hires are hired from qualified categories and then work at least full-time for five years straight. Would Morain argue that it would be a bad thing if 150 people in Visalia who are military veterans, disabled, ex-offenders, dislocated workers, or have very low income received gainful, full-time employment? The total tax credit benefit VWR is likely to expect over five years of operation with about 150 employees is more like $1 million, and they are likely to faced with a myriad of limitations on their ability to utilize those credits because of complexities in the tax code.

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